Monday, November 08, 2010

Big banks will be put under further pressure this week when the government releases the formal definition of the term "gouging" that it will use to guide prosecutions.

Since July it has been illegal for a bank to charge a mortgage exit fee any higher than needed to cover its costs.

But until now no banks have been taken to court because the Securities and Investments Commission has been preparing what it calls "regulatory guidance" detailing what it will regard as unfair.

Prime Minister Gillard said yesterday the guidelines would be a further step in cracking down on the fees "that keep people bound into their banks even though they want to change, because they want to shop around and get a better deal".

Treasurer Wayne Swan said they would "give customers of banks the capacity to walk down the street and get out of some of those very unfair mortgage exit fees that keep them locked in to their existing bank"....
But for most of Australia's 2.5 million mortgage holders they will do little. The law that came into force in July only applies to mortgages entered into after that date. Customers on existing mortgages with exit fees that run into the thousands will remain trapped by those fees.

The guidelines are also unlikely to result in many prosecutions, although that's the idea.

Government sources say that once they are published few banks are likely to contravene them, meaning customers will get protection without the need to use the courts.

ASIC ran the draft rules by the banks five months ago and has been refining them since.

The much-vaunted bank-switching package unveiled by the Treasurer in late 2008 is barely used with Freedom of Information documents revealing as few as 1818 mortgage holders lodged forms in its first year. The so-called "hotline" set up to offer advice on switching is actually the ASIC switchboard and the bank switching website contains at least one broken link.

For the moment the rewards from switching are the greatest they have ever been. For the first time since the Reserve Bank began announcing rate moves in 1990 three of the big banks have held off announcing their responses, opening up a record gap with the Commonwealth Bank after it pushed up rates 0.45 points.

With the Commonwealth's standard variable rate now 7.81 per cent and the National Australia rate for the moment 7.24, the saving on a $300,000 mortgage amounts to $111 per month.

Next month the Treasurer will announce a series of moves to crackdown on price signalling - where banks use the media to tell other banks how they intend to move on rates.

Shadow Treasurer Joe Hockey is preparing his own legislation to crack down on the practice and the independent Senator Nick Xenophon has called for the
Competition and Consumer Commission to be given the power to tap bank phones.

"The ACCC already has phone-tapping powers for cartel behaviour," he said. "I think it is entirely reasonable for them to have similar powers when it comes to allegations of price-fixing or price-signalling.''